Social Unrest Breaks Out In China After “Panic” Bank Run On Peer-2-Peer Lenders

One week ago, when discussing the “source of China’s next debt crisis”, namely the recent explosion in Chinese household debt which over the past year has soared by over 40% even as credit growth across other debt categories remained relatively stable…

… and which was on the verge of surpassing the nation’s corporations as the biggest source of credit demand, we highlighted the one financial sector that has recently emerged as most at risk in China’s economy: online peer-to-peer lenders who collect money from retail investors and dispense small loans to consumers, usually without collateral, putting the loans at risk of a default with zero recovery.

We pointed out that outstanding loans on P2P platforms rose 50% just last year to total Rmb1.49 trillion ($215 billion) – making the size of China’s P2P industry far bigger than in the rest of the world combined – and due to their lack of collateral, interest rates often are as high as 37%, with additional charges for late payment.

P2P, in which platforms gather funds from retail investors and loan the money to small corporate and individual borrowers, promising high returns, started to flourish nearly unregulated in China in 2011. At its peak in …read more